CASE STUDY: SONY, AN END OF AN ERA

Sony a Marketplace Creator and Leader

After the World War II, Sony became popular after applying applied transistor technology, which was
invented by Texas Instruments (TI). The co-founder of the Sony, Akio Morita was always kept looking for
technological advancement and for that the company leadership spent countless hours in innovatively
thinking about how to apply these advances to improve lives. With such a passion for creating new markets,
Sony was an early creator, and dominator, of what we now call “consumer electronics” because of the
following reasons as given below:

Sony improved solid state transistor radios by making good quality sound and also inexpensive to..

Sony developed the solid state television by replacing tubes to make TVs more reliable, better working and
use less energy.

Sony developed the Triniton television tube, which dramatically improved the quality of color (yes Virginia,
once TV was all in black & white) and enticed an entire generation to switch. Sony also expanded the size
of Trinitron to make larger sets that better fit larger homes.

Sony was an early developer of videotape technology, pioneering the market with Betamax before losing a
battle with JVC to be the standard (yes Virginia, we once watched movies on tape).

Sony pioneered the development of camcorders, for the first time turning parents and everyone into home
movie creators.

Sony pioneered the development of independent mobile entertainment by creating the walkman, which
allowed for the first time people to take their own recorded music with them, via cassette tapes.

Sony pioneered the development of compact discs for music, and developed the walkman CD for portable
use.

Sony gave us the play station, which went far beyond Nintendo in creating the products that excited users
and made “home gaming” a market.

Very few companies could ever boast a string of such successful products. A report said that in Sony
executives spent 85% of their time on technology, products and new applications/markets, 10% on human
resource issues and 5% on finance. Mr. Morita said that financial results were just those results of doing
a good job developing new products and markets.

What went Wrong for Sony?

In 1950 W. Edward Deming had convinced Japanese leaders to focus, focus on making things better as well
as faster and cheaper. Taking advantage of Japanese post war dependence on foreign capital, and foreign
markets, this U.S. citizen directed Japanese industry into an obsession with industrialization as practiced in
the 1940s and was credited for creating the rapid massive military equipment build-up that allowed the U.S.
to defeat Japan. Unfortunately, this narrow obsession was left Japanese business leaders, by and large,
with little skill set for developing and implementing R&D, or innovation, in any other area. As time
passed, Sony felt victim to developing products for manufacturing, rather than pioneering new markets.

Sony had ended up in a cost/price/manufacturing war with Dell, HP, Lenovo and others to make cheaper
PCs rather than the exciting products. Sony’s evolved a distinctly industrial strategy, focused on
manufacturing and volume, rather than trying to develop uniquely new products that were head-and-
shoulders better than competitors.

In mobile phones Sony hooked up with, and eventually acquired, Ericsson. Again, no new technology or
effort to make a wildly superior mobile device (like Apple did.) Instead Sony sought to build volume in
order to manufacture more phones and compete on price/features/functions against Nokia, Motorola and
Samsung. Lacking any product or technology advantage, Samsung clobbered Sony’s Industrial strategy
with lower cost via non-Japanese manufacturing.

When Sony updated its competition in home movies by introducing Blu-Ray, the strategy was again an
industrial one about how to sell Blu-Ray recorders and players. Sony didn’t sell the Blu-Ray software
technology in hopes people would use it. Instead it kept Blu-Ray proprietary so only Sony could make and
sell Blu-Ray products (hardware). Just as it did in MP3, creating a proprietary version usable only on Sony
devices. In an information economy, this approach didn’t fly with consumers, and Blue Ray was a money
loser largely irrelevant to the market as was the now-gone Sony MP3 product line.

In the case of televisions, Sony was lost the technological advantage it had with Trinitron cathode ray
tubes. In flat screens Sony has applied a predictable, but money losing industrial strategy trying to compete
on volume and cost. Up against competitors sourcing from lower cost labor, and capital, Sony was lost
over $10 billion over the last 8 years in televisions. Sony hasn’t made a profit in 4 consecutive years, just
recently announced it will double its expected loss for this year to$6.4 billion, has only 15% of its capital left
as and was only worth 1/4 of its value 10 years ago.

Sony’s Leadership was a Keen Conspirator to the Failed Strategy

Akio Morita was an innovator and new market creator of Sony. But, Mr. Morita lived through WWII, and
developed his business approach before Deming. Under Mr. Morita, Sony was used the industrial
knowledge Deming and his American peers offered to make Sony’s products highly competitive against
older technologies. The products led, with industrial-era tactics used to lower cost.

But after Mr. Morita Sony’s other leaders were trained, like American-minted MBAs, to implement industrial
strategies. Their minds put products and new markets, second. First was a commitment to volume and
production regardless of the products or the technology. The fundamental belief was that if Sony had
enough volume, and cut costs low enough, Sony would eventually succeed without any innovation.

By 2005 Sony reached the pinnacle of this strategic approach by installing a non-Japanese to run the
company. Sir Howard Stringer made his fame running Sony’s American business, where he exemplified
industrial strategy by cutting 9,000 of 30,000 U.S. jobs (almost one third.).Mr. Stringer, strategy was not
about innovation, technology, products or new markets.

Sony’s industrial strategy was cost-cut first, products are less meaningful
Mr. Stringer’s industrial strategy was to be obsessive about costs. Where, Mr. Morita’s meetings were 85%
about innovation and market application. Mr. Stringer brought a “modern” MBA approach to the Sony
business, where numbers especially financial projections came first. The leadership, and management, at
Sony became a model of MBA training post-1960. Focus on a narrow product set to increase volume,
avoid costly development of new technologies in favor of seeking high-volume manufacturing of someone
else’s technology, reduce product introductions in order to extend product life, tooling amortization and run
lengths, and constantly look for new ways to cut costs. Be zealous about cost cutting, and reward it in
meetings and with bonuses.

Thus, during his brief tenure in Sony Mr. Stringer will not be known for new products. Rather, he will be
remembered for initiating two waves of layoffs in what was historically a lifetime employment company (and
country.) And now, in a nod to Chairman Stringer the new CEO at Sony has indicated he will react to
ongoing losses by another round of layoffs. This time estimated to be another 10,000 workers, or 6% of
employees. The new CEO, Mr. Hirai, trained at the hand of Mr. Stringer, demonstrates as he announces
ever greater losses that Sony hopes to somehow save its way to prosperity with an Industrial strategy.

Since Japanese equity laws are very different that the USA. Companies often have much higher debt
levels. And companies can even operate with negative equity values which would be technical bankruptcy
almost everywhere else. So it is not likely Sony will fill bankruptcy any time soon, if ever.

After 4 years of losses, and entrenched Industrial strategy with MBA-style leadership focused on “numbers”
rather than markets, there was no reason to think the trajectory of sales or profits will change any time soon.

As an employee, facing ongoing layoffs why would you wish to work at Sony? A “me too” product strategy
with little technical innovation that puts all attention on cost reduction would not be a fun place and offers
little promotional growth.

And for suppliers, it was assured that each and every meeting will be about how to lower price — over, and
over, and over.

Sony was once a company to watch. It was an innovative leader, which pioneered new markets. Not unlike
Apple today. But with its Industrial strategy and MBA numbers- focused leadership it is now time to say,
sayonara. Sell Sony, there are more interesting companies to watch and more profitable places to invest.

CASE STUDY QUESTIONS:

1. Based on the article, what happened at first to Sony in the pioneering industry?
2. Enumerate the problems encountered and how did the management respond to it. Explain your
answers.
3. If you were part of the management team, what project can you propose so that the failure of Sony
be prevented? Elaborate your answer.
4. If IT was part of their core management, do you think it will help them to prevent the failure? Provide
supporting details of your answer.
5. With all the things, happened to Sony what do you think is/are the best solution/s so that they can
still be in the market despite their failure. Enumerate your answer.